MGM624-0901A-01 Applied Accounting for Decision-Making - Phase 1 Essay - 1

MGM624-0901A-01 Applied Accounting for Decision-Making - Phase 1 Discussion Board 2 - Essay Example However, a steep increase in the prices will have an adverse effect on the sales volume. Hence an increase of 5% in the sales price will bring the break even volume back to [500,000 / (315 – 115)] 2,500 units. It is evident that JTI has invested heavily in the initial manufacturing of the new luggage line. Steps have to be taken to increase productivity of the entire manufacturing process, by reducing wastage and increasing the effectiveness of the labour. The effectiveness of the resources can be attained by introducing incentives based on performance. Awards can also be presented to the most effective employees every month and this will act as a motivating factor for the employees to increase the productivity (Samuels et al, 2000). Assuming that theses schemes reduce the variable costs to $110, then the break even volume becomes [500,000 – (315 – 110)] 2,440 units. There is a risk of losing sales volume, when the price is increased. The increase in price is profitable as long as the sales volume remains at 3,600 units. It is essential to consider the number of customers JTI stands to lose by increasing the prices (Baker et al, 2008). There are a number of risks involved in introducing incentives based on performance to increase the performance. The management has to set up benchmarks to quantify performance. In case the goals set are impossible to attain, the scheme will de-motivate the employees and can have a negative impact on productivity. Also, if the goals are very simple to attain, then the company stands to lose more in terms of incentive payouts to the employees (Latham, 2004). Hence excessive care has to be taken to set the benchmarks against which the performance of the employees will be measured. From the above arguments, it is clear that JTI has to increase prices and also increase the productivity in order to maintain